Monthly Archives: September 2013

Small Company in the Companies Act, 2013

The concept of “small company” has been introduced for the first time in the Companies Act, 2013. Here we take a look at the definition and what relaxations has been afforded to a small company under the Companies Act, 2013.

Section 2(85) defines a Small company as 

‘‘small company’’ means a company, other than a public company,—
(i) paid-up share capital of which does not exceed fifty lakh rupees or such higher amount as may be prescribed which shall not be more than five crore rupees; or
(ii) turnover of which as per its last profit and loss account does not exceed two crore rupees or such higher amount as may be prescribed which shall not be more than twenty crore rupees:
Provided that nothing in this clause shall apply to—
(A) a holding company or a subsidiary company;
(B) a company registered under section 8; or
(C) a company or body corporate governed by any special Act;

As can be seen it is a very complicated definition. In the first sentence itself a public company has been removed from the definition of a small company. Therefore a public company with 7 shareholders and minimum of Rs.5 lakhs share capital will not be considered as a “Small Company” 

Secondly the proviso states that a Private company which is a holding company or a subsidiary company will also not be considered as a “Small Company”.  Public Company has anyway been eliminated from the definition of a Small Company so the proviso (A) applies only to a private company which is a holding or subsidiary company. In case of subsidiary private company, it obviously means subsidiary to another private company because a private company which is subsidiary to a public company is considered as a public company as per the definition of “public company” in section 2(71) of the Act. 

Coming back to the definition of Small Company, any company which has a paid up share capital of not exceeding Rs.50 lakhs or such higher amount as may be prescribed but not exceeding Rs.5 crores OR turnover as per last profit and loss account which does not exceed Rs.2 crores or such higher amount as may be prescribed but does not exceed Rs.20 crores. So the criteria for inclusion of a company as a small company is on the dual basis of either paid up share capital or turnover as per last profit & loss account. So if the company breaches any one limit, it goes out of the ambit of Small Company, for eg. if the paid up share capital is only Rs.25 lakhs but if the turnover goes to Rs.2.5 crores then it automatically gets struck off as a Small Company. A piquant situation could arise whether the company could yo-yo from Small Company to Non-Small Company on a yearly basis if the turnover keeps fluctuating below and above the limits.

Now let us look at what are the benefits of being a small company under the companies act, 2013

Section 2(40) defines “Financial Statement”. The exemption given to a Small Company is that a Financial Statement need not include Cash Flow statement for the financial year.

 

2(40) “financial statement” in relation to a company, includes—
(i) a balance sheet as at the end of the financial year;
(ii) a profit and loss account, or in the case of a company carrying on any activity not for profit, an income and expenditure account for the financial year;
(iii) cash flow statement for the financial year;
(iv) a statement of changes in equity, if applicable; and
(v) any explanatory note annexed to, or forming part of, any document referred to in sub-clause (i) to sub-clause (iv):
Provided that the financial statement, with respect to One Person Company, small company and dormant company, may not include the cash flow statement;

The next reference to small company is in Proviso to Section 92(1) of the Companies Act, 2013. It provides that the annual return of a small company can be signed by a Company Secretary or where there is no Company Secretary by the Director of a company. It is a very surprising provision because Small Companies are not required to appoint Company Secretary who are included in the definition of Key Managerial Personnel as per section 2(51) of the Act. The limits of Key Managerial Personnel are to be found in Draft Rule 13.6 which stipulates that every listed company and every other company with a paid up share capital of Rs.5 crores shall appoint a Key Managerial Personnel. So where is the necessity for a Small Company to appoint a Key Managerial Personnel in the form of Company Secretary. So basically it means the annual return of a Small Company should be signed by a Director of the company. Hitherto companies which had paid up share capital exceeding Rs.10 lakhs were required to submit a Compliance Certificate as per Section 383A of the Companies Act, 1956. The concept of Compliance Certificate which was originally for companies with share capital between Rs.10 lakhs to Rs.50 lakhs but later the upper limits were enhanced, first to Rs.2 crores, then to Rs.3 crores and now to Rs.5 crores. The Compliance Certification system brought about a lot of compliance discipline in the small companies because by force of law, small companies were required to maintain statutory registers, minutes books, and properly comply with all the rules and regulations governing a corporate entity in India. Unfortunately with the removal of Compliance Certificate and the requirement that the annual return of a small company need be effectively signed by a Director, all that compliance system which was so meticulously infused in small companies will simply fall by the way side. So much for an economy which seeks to move up the economic ladder of developing nations and aspires to be a super power in the near future!!!

The provisions of section 92(1) are as follows:

92. (1) Every company shall prepare a return (hereinafter referred to as the annual return) in the prescribed form containing the particulars as they stood on the close of the financial year regarding—
(a) its registered office, principal business activities, particulars of its holding, subsidiary and associate companies;
(b) its shares, debentures and other securities and shareholding pattern;
(c) its indebtedness;
(d) its members and debenture-holders along with changes therein since the close of the previous financial year;
(e) its promoters, directors, key managerial personnel along with changes therein since the close of the previous financial year;
(f) meetings of members or a class thereof, Board and its various committees along with attendance details;
(g) remuneration of directors and key managerial personnel;
(h) penalty or punishment imposed on the company, its directors or officers and details of compounding of offences and appeals made against such penalty or punishment;
(i) matters relating to certification of compliances, disclosures as may be prescribed;
(j) details, as may be prescribed, in respect of shares held by or on behalf of the Foreign Institutional Investors indicating their names, addresses, countries of incorporation, registration and percentage of shareholding held by them; and
(k) such other matters as may be prescribed,
and signed by a director and the company secretary, or where there is no company secretary, by a company secretary in practice:
Provided that in relation to One Person Company and small company, the annual return shall be signed by the company secretary, or where there is no company secretary, by the director of the company.

The next mention of Small Company is to be found in Section 173 relating to Meetings of Board of Directors and the requirement of holding at least four Board meetings in a year and the gap between two Board meetings not to be more than 120 days. Section 173(5) specifies that Small Company need hold only one Board meeting in each half of a calendar year and the gap between two Board meeting is not less than 90 days. 

Remember that for Normal Companies the gap between two Board meetings should be not more than 120 days whereas for Small Companies the gap between two Board meetings should be not less than 90 days. Which means basically there should be a three month gap between two Board meetings of a Small Company.  

173 (5) A One Person Company, small company and dormant company shall be deemed to have complied with the provisions of this section if at least one meeting of the Board of Directors has been conducted in each half of a calendar year and the gap between the two meetings is not less than ninety days:

So that summarises the concept of Small Company. So effectively Small Companies get to hold two less Board meetings during the year and a Single Director can sign the annual return and they need not produce the Cash Flow statement. Other than that I did not find any mention of Small Company in the Companies Act, 2013. They still have to maintain statutory registers, minutes Books, books of account, common seal, hold an annual general meeting, have a registered office, have minimum of two directors and two shareholders. 

So whether it was a wise move on the part of the Ministry of Corporate Affairs to carve out a definition of Small Company with so little exemptions provided to them under the Companies act, 2013. 

13 Comments

Filed under company law

Proxies – Section 105 of the Companies Act, 2013

Section 105 of the Companies Act, 2013 corresponds to Section 176 of the Companies Act, 1956. The provisions of section 105 is substantially the same as the provisions of section 176 except the following:

1) A person can be appointed proxy for upto 50 members and holding not more than 10% of the aggregate share capital carrying voting rights. In the 1956 Act, there is no specific limit laid down as above, but there (i.e. in the 1956 Act), the members of a private company is allowed to appoint only one proxy on the same occasion. 

Rule 7.17(1) specifies that a member of a section 8 company (i.e .charitable purposes company) is allowed to appoint only another member as a proxy and therefore outside person cannot be appointed as a proxy in such company.

The third and fourth proviso, i.e. the above two matters is not yet notified.

Again like in the 1956 proxies are not allowed to speak at the meeting and not allowed to vote except on a poll. I thought a modern company law would have allowed the proxies to speak as well as vote, otherwise what is the purpose of proxies except for the purpose of counting the numbers, because even for quorum, the members personally present are taken into account. In a modern era of corporate governance and increasing shareholder activism where there are specialised proxy firms which specialise in collection of proxies and whose members are in a better position to speak at the meetings regarding the affairs of the company rather than ordinary shareholders, it would have been prudent to have allowed the proxies to also speak at the general meetings. It would have made for better participation at the general meetings. Otherwise annual general meetings as we know of are pretty mundane affairs and the people who normally speak at these meetings are those who frequent every possible annual general meetings in order to collect their gift coupons and generally to make trouble for the company management. In such a situation, it would have made better corporate governance sense to have allowed proxies especially institutionalised proxies to speak at the general meetings.

Regarding the matter of not voting except on a poll, seriously who really counts the votes by show of hands. A resolution is moved, then seconded by some member and motion proposed for approval of show of hands and generally many members raise their hands – nobody really counts how many hands were raised for and against. So even if the proxies do raise their hands in voting by show of hands, nobody would know the difference. Therefore, this provision in infructuous.

Section 105

105. (1) Any member of a company entitled to attend and vote at a meeting of the company shall be entitled to appoint another person as a proxy to attend and vote at the meeting on his behalf:
Provided that a proxy shall not have the right to speak at such meeting and shall not be entitled to vote except on a poll:
Provided further that, unless the articles of a company otherwise provide, this subsection shall not apply in the case of a company not having a share capital:
Provided also that the Central Government may prescribe a class or classes of companies whose members shall not be entitled to appoint another person as a proxy:
Provided also that a person appointed as proxy shall act on behalf of such member or number of members not exceeding fifty and such number of shares as may be prescribed.

(2) In every notice calling a meeting of a company which has a share capital, or the articles of which provide for voting by proxy at the meeting, there shall appear with reasonable prominence a statement that a member entitled to attend and vote is entitled to appoint a proxy, or, where that is allowed, one or more proxies, to attend and vote instead of himself, and that a proxy need not be a member.
(3) If default is made in complying with sub-section (2), every officer of the company who is in default shall be punishable with fine which may extend to five thousand rupees.

 (4) Any provision contained in the articles of a company which specifies or requires a longer period than forty-eight hours before a meeting of the company, for depositing with the company or any other person any instrument appointing a proxy or any other document necessary to show the validity or otherwise relating to the appointment of a proxy in order that the appointment may be effective at such meeting, shall have effect as if a period of forty-eight hours had been specified in or required by such provision for such deposit.

(5) If for the purpose of any meeting of a company, invitations to appoint as proxy a person or one of a number of persons specified in the invitations are issued at the company’s expense to any member entitled to have a notice of the meeting sent to him and to vote thereat by proxy, every officer of the company who knowingly issues the invitations as aforesaid or wilfully authorises or permits their issue shall be punishable with fine which may extend to one lakh rupees:
Provided that an officer shall not be punishable under this sub-section by reason only of the issue to a member at his request in writing of a form of appointment naming the proxy, or of a list of persons willing to act as proxies, if the form or list is available on request in writing to every member entitled to vote at the meeting by proxy.

(6) The instrument appointing a proxy shall—
(a) be in writing; and
(b) be signed by the appointer or his attorney duly authorised in writing or, if the appointer is a body corporate, be under its seal or be signed by an officer or an attorney duly authorised by it.
(7) An instrument appointing a proxy, if in the form as may be prescribed, shall not be questioned on the ground that it fails to comply with any special requirements specified for such instrument by the articles of a company.
(8) Every member entitled to vote at a meeting of the company, or on any resolution to be moved thereat, shall be entitled during the period beginning twenty-four hours before the time fixed for the commencement of the meeting and ending with the conclusion of the meeting, to inspect the proxies lodged, at any time during the business hours of the company,
provided not less than three days’ notice in writing of the intention so to inspect is given to the company.

Rule 7.17

7.17. (1) For the purpose of third proviso to the sub-section (1) of section 105, a member of a company registered under section 8 shall not be entitled to appoint any other person as his proxy unless such other person is also a member of such company.
(2) No person shall act as proxy on behalf of members not exceeding fifty and holding in the aggregate not more than ten percent of the total share capital of the company carrying voting rights.
(3) For the purposes of sub-section (6) of section 105, the appointment of proxy shall be in the Form No. 7.11.

 

2 Comments

Filed under company law

Postal Ballot and Voting by Electronic Means under Companies Act, 2013

Postal Ballot is defined under section 2(65) means “voting by post or through any electronic mode”. Postal Ballot definition was never given in the Companies Act, 1956 because the concept of Postal Ballot was introduced into the Companies Act, 1956 by the 2001 Amendment and postal ballot under the 1956 Act included only voting by postal ballot not by electronic mode. 

Section 110 of the Companies Act, 2013 refers to Postal Ballot. Section 110(a) refers to the mandatory items which has to be transacted only by postal ballot as per Rules laid down by Central government. Rule 7.20(16) specifies the list of items which has to be mandatorily transacted only by postal ballot. These are: 

(a) Alteration of the objects clause of the memorandum and in the case of the company in existence immediately before the commencement of the Act, alteration of the main objects of the memorandum;

(b) Alteration of articles of association in relation to insertion or removal of provisions which, under sub-section (68) of section 2, are required to be included in the articles of a company in order to constitute it a private company;

(c) Change in place of registered office outside the local limits of any city, town or village as specified in sub-section (5) of section 12;

(d) Change in objects for which a company has raised money from public through prospectus and still has any unutilized amount out of the money so raised under sub-section (8) of section 13;

(e) Issue of shares with differential rights as to voting or dividend or otherwise under sub-clause (ii) of clause (a) of section 43;

(f) Variation in the rights attached to a class of shares or debentures or other securities as specified under section 48;

(g) Buy-back of shares by a company under sub-section (1) of section 68;

(h) Election of a director under section 151 of the Act;

(i) Sale of the whole or substantially the whole of an undertaking of a company as specified under sub-clause (a) of sub-section (1) of section 180;

(j) Giving loans or extending guarantee or providing security in excess of the limit prescribed under sub-section (3) of section 186;

Section 110(b) specifies that a company MAY in respect of any items of business other than ordinary business and any business in respect of which the directors and auditors have a right to be heard, transact by postal ballot. So this is a discretion on the part of the company to transact any business which does not fall under the list of mandatory items as per Rule 7.20(16) and which is not ordinary business to have such items transacted by postal ballot. Any business where the directors or auditors have a right to be heard refers to the resolution for the removal of the directors or auditor.

Rule 7.20 lays down the procedures to be followed by companies while transacting business through postal ballot. 

7.20. (1) For the purposes of section 110, where a company is required or decides to pass any resolution by way of postal ballot, it shall send a notice to all the shareholders, along with a draft resolution explaining the reasons therefor and requesting them to send their assent or dissent in writing on a postal ballot or by electronic means within a period of thirty days from the date of dispatch of the notice.

(2) The notice shall be sent by speed post or registered post acknowledgement due or by electronic means and shall include with the notice where it is sent by post, a postage pre-paid envelope for facilitating the communication of the assent or dissent of the shareholder to the resolution within the said period of thirty days.

(3) An advertisement shall be published at least once in a vernacular newspaper in the principal vernacular language of the district in which the registered office of the company is situated, and having a wide circulation in that district, and at least once in English language in an English newspaper having a wide circulation in that district, about having dispatched the ballot papers and specifying therein, inter alia, the following matters: ,

(a) a statement to the effect that the business is to be transacted by postal ballot which includes voting by electronic means;

(b) the date of completion of dispatch of notices;

(c) the date of commencement of voting;

(d) the date of end of voting;

(e) the statement that any postal ballot received from the member beyond the said date will not be valid and voting whether by post or by electronic means shall not be allowed beyond the said date;

(f) a statement to the effect that members, who have not received postal ballot forms may apply to the company and obtain a duplicate thereof; and

(g) contact details of the person responsible to address the grievances connected with the voting by postal ballot including voting by electronic means.

(4) The notice of the postal ballot shall also be placed on the website of the company forthwith after the notice is sent to the members and such notice shall remain on such website till the last date for receipt of the postal ballots from the members.

(5) The Board of directors shall appoint one scrutinizer, who is not in employment of the company and who, in the opinion of the Board can conduct the postal ballot voting process in a fair and transparent manner.

(6) The scrutinizer shall be willing to be appointed and be available for the purpose of ascertaining the requisite majority.

(7) If a resolution is assented to by the requisite majority of the shareholders by means of postal ballot including voting by electronic means, it shall be deemed to have been duly passed at a general meeting convened in that behalf.

(8) Postal ballot received back from the shareholders shall be kept in the safe custody of the scrutinizer. After the receipt of assent or dissent of the shareholder in writing on a postal ballot, no person shall deface or destroy the ballot paper or declare the identity of the shareholder.

(9) The scrutinizer shall submit his report as soon as possible after the last date of receipt of postal ballots but not later than seven days thereof;,

(10) The scrutinizer shall maintain a register either manually or electronically to record their assent or dissent received, mentioning the particulars of name, address, folio number or client ID of the shareholder, number of shares held by them, nominal value of such shares, whether the shares have differential voting rights, if any, details of postal ballots which are received in defaced or mutilated form and postal ballot forms which are invalid.

(11) The postal ballot and all other papers relating to postal ballot including voting by electronic means, shall be under the safe custody of the scrutinizer till the chairman considers, approves and signs the minutes. Thereafter, the scrutinizer shall return the ballot papers and other related papers/register to the company who shall preserve such ballot papers and other related papers/register safely.

(12) The consent or otherwise received after thirty days from the date of issue of notice shall be treated as if reply from the member has not been received.

(13) The results shall be declared by placing it, along with the scrutinizer’s report, on the website of the company.

(14) The resolution shall be deemed to be passed on the date of declaration of its result.

(15) The provisions of Rule 7.18 regarding voting by electronic means shall apply, as far as applicable, mutatis mutandis to this rule in respect of the voting by electronic means.

Provided that One Person Company and other companies having members upto fifty are not required to transact any business through postal ballot.

Earlier only listed public company was mandated to transact items via postal ballot. Now this has been extended to all companies except a One Person Company and other companies having members upto fifty in number. So any company, public or private which has 51 shareholders and above are required to transact the business through postal ballot as per this section and the relevant Rules. 

Section 108 of the Companies Act, 2013 introduces the concept of voting by electronic means and provides that Central Government may prescribe the class or classes of companies in which a member may exercise his right to vote by electonic means. Rule 7.18 lays down detailed rules in this regard.

7.18.(1) For the purposes of section 108, every listed company or a company having five hundreds or more shareholders may provide to its members facility to exercise their right to vote at general meetings by electronic means. So basically every listed company and every other company which has 500 or more shareholders MAY provide facility of electronic voting to its members. So at the present moment, it is not mandatory for a company to provide the facility of voting by electronic means unlike the postal ballot where certain items have to be mandatorily transacted by postal ballot. Well, voting by electronic means is one method of voting by postal ballot and with the advent of technology, more and more companies will be able to offer this facility to its members. 

The other provisions of Rule 7.18 are given below:

(2) For the purposes of section 108, a member may exercise his right to vote at any general meeting by electronic means and company may pass any resolution by electronic voting system in accordance with the provisions of this rule.

Explanation.-I. For the purposes of this rule, ‘voting by electronic means’ or ‘electronic voting system’ means a ‘secured system’ based process of display of electronic ballots, recording of votes of the members and the number of votes polled in favour or against, such that the entire voting exercised by way of electronic means gets registered and counted in an electronic registry in a centralized server with adequate ‘cyber security’.

II. ‘Secured system’ means computer hardware, software, and procedure that –

(a) are reasonably secure from unauthorized access and misuse;

(b) provide a reasonable level of reliability and correct operation;

(c) are reasonably suited to performing the intended functions; and

(d) adhere to generally accepted security procedures.

III. “Cyber security” means protecting information, equipment, devices, computer, computer resource, communication device and information stored therein from unauthorized access, use, disclosures, disruption, modification or destruction.

(3) A company which opts to provide the facility to its members to exercise their votes at any general meeting by electronic voting system shall follow the following procedure:

Explanation- For the purposes of this rule, ‘agency’ means an agency approved by the Ministry of Corporate Affairs and appointed by a company for providing and supervising electronic platform for voting by electronic means.

Provided that the company may itself get registered with Ministry of Corporate Affairs for providing and supervising electronic platform for voting by electronic means. The Ministry may authorize the agency from the approved list.

(i) The notices of the meeting shall be sent to all the members/ auditors of accompany/directors/key managerial personal either, –

(a) by Registered Post or speed post with AD, or

(b) through electronic means like registered e-mail id etc,

in accordance with the provisions of section 101.

(ii) The notice shall also be placed on the website of the company, if any and of the agency forthwith after it is sent to the members.

(iii) The notice of the meeting shall clearly mention that the business may be transacted through electronic voting system and the company is providing facility for voting by electronic means.

(iv) The notice shall clearly indicate the process and manner for voting by electronic means and time schedule including the time period during which the votes may be cast, address of places for casting votes duly sorted in order of name of states or union territories, where the members can cast their votes electronically.

(v) The company shall cause an advertisement to be published, not less than five days before the date of beginning of the voting period, at least once in a vernacular newspaper in the principal vernacular language of the district in which the registered office of the company is situated, and having a wide circulation in that district, and at least once in English language in an English newspaper having a wide circulation in that district, about having sent the notice of the meeting and specifying therein, inter alia, the following matters:

(a) statement that the business may be transacted by electronic voting;

(b) the date of completion of sending of notices;

(c) the date and time of commencement of voting through electronic means;

(d) the date and time of end of voting through electronic means;

(e) the statement that voting shall not be allowed beyond the said date and time;

(f) website address of the company and agency, if any, where notice of the meeting is displayed; and

(g) contact details of the person responsible to address the grievances connected with the electronic voting.

(vi) E-voting shall remain open for not less than seven days and not more than ten days.

(vii) During the e-voting period, shareholders of the company, holding shares either in physical form or in dematerialized form, as on the record date, may cast their vote electronically:

Provided that once the vote on a resolution is cast by the shareholder, he shall not be allowed to change it subsequently.

(viii) At the end of the voting period, the portal where votes are cast shall forthwith be blocked.

(ix)The Board of directors shall appoint one scrutinizer, who is not in employment of the company and is a person of repute who, in the opinion of the Board can scrutinize the e-voting process in a fair and transparent manner:

Provided that the scrutinizer so appointed may take assistance of a person who is not in employment of the company and who is well-versed with the e-voting system.

(x)The scrutinizer shall be willing to be appointed and be available for the purpose of ascertaining the requisite majority.

(xi)The scrutinizer shall, within a period of not exceeding three working days from the date of conclusion of e-voting period, unblock the votes in the presence of at least two witnesses and make a scrutinizer’s report of the votes cast in favour or against, if any, forthwith to the Chairman.

(xii) The scrutinizer shall maintain a register either manually or electronically to record the consent or otherwise, received, mentioning the particulars of name, address, folio number or client ID of the shareholders, number of shares held by them, nominal value of such shares and whether the shares have differential voting rights.

(xiii) The register and all other papers relating to electronic voting shall remain in the safe custody of the scrutinizer till the chairman considers, approves and signs the minutes. Thereafter, the scrutinizer shall return the register and other related papers to the company.

(xiv) The results declared along with the scrutinizer’s report shall be placed on the website of the company and on the website of the agency within two days of passing of the resolution at the relevant general meeting of members.

(xv) Subject to receipt of sufficient votes, the resolution shall be deemed to be passed on the date of the relevant general meeting of members.

(xvi) Words and expressions used in this rule but not defined shall, unless the context otherwise requires, bear the meaning, if any, as assigned to them under the Act and Information Technology Act, 2000.

So the scope for Company secretary in Practice has been enhanced with the Scrutinizer’s requirement for postal ballot and also for Electronic Voting process. 

 The Rules as mentioned above are in the Draft Rules stage and yet to be finalised/ notified by the Central government. 

Leave a comment

Filed under company law

Non-residents allowed to carry upto Rs.10K upto DFA/SHA

RBI has vide its circular http://rbi.org.in/Scripts/NotificationUser.aspx?Id=8417&Mode=0 allowed non residents to carry with them upto Rs.10,000 in cash beyond the immigration counter upto the Duty Free Area/ Security Hold Area in order to avail of any cash purchases at the duty free shops at the international airports. But they should dispose of the Indian currency while entering the SHA since Indian rupees are not allowed to be taken abroad, reason being Indian rupees are not yet fully convertible. Foreign exchange counters are being established in the departure halls in international airports in order to provide facility to travellers to sell their unspent Indian currency to the dealers and in turn buy foreign currency.  

Vide another circular http://www.rbi.org.in/scripts/BS_PressReleaseDisplay.aspx?prid=29588 the RBI has clarified that this is not a form of restriction but of liberalisation considering the requests made from travellers to be allowed to carry Indian rupees beyond the immigration counter in order to make their purchase in rupees at the duty free shops. 

 

Leave a comment

Filed under Uncategorized

Guidelines on Arrest and Bail in respect of Service Tax offences

Central Board of Excise and Customs has released Circular no. 171/6/2013 dated 17th September 2013 giving guidelines for arrest and bail in relation to offences under Finance Act, 1994 i.e. in respect of Service Tax.  Extracts from the said circular is reproduced below. The full contents of the circular is available at the service tax website viz. http://www.servicetax.gov.in/st-circulars-home.htm

Subject:  Guidelines for arrest and bail in relation to offences punishable under the Finance Act, 1994

 Section 103 (K) of the Finance Act, 2013 has introduced Sections 90 & 91 in the Finance Act, 1994, with effect from  10th May, 2013.  In terms of section 90 of the Finance Act , 1994, as amended, offences under section 89(1) (ii) shall be cognizable and all other offences shall be non-cognizable and bailable. In terms of section 91(1) read with section 89(1) (i) and (ii) of the Finance Act, 1994, as amended, the power to arrest has been introduced in cases involving evasion of service tax covered under section 89(1) (i) and (ii) of the Finance Act, 1994, as amended and the amount of service tax evaded  exceeds rupees fifty lakh. In this context, the following points may be noted for strict compliance:-

 

1.2       The following cases are covered under section 89(1) (i):

1.2.1     where a person knowingly evades the payment of service tax, or

1.2.2   avails and utilizes  credit of taxes or duty without actual receipt of taxable service or excisable goods either fully or partially in violation of the rules, or

1.2.3    maintains false books of accounts or fails to supply any information which he is required to supply or supplies false information,

 and the amount of service tax involved is more than fifty lakh rupees.

In such cases, the Assistant Commissioner or  the Deputy Commissioner shall, for the purpose of releasing an arrested person on bail or otherwise,  have the same powers and be subject to the same provisions as an officer in-charge of a police station has, and  is subject to, under Section 436 of the Code of Criminal Procedure, 1973( 2 of 1974). This is in terms of section 91(3) of the Finance Act, 1994, as amended.

 

1.3       The following cases are covered under section 89(1) (ii):

1.3.1    where  a person has collected any amount exceeding fifty lakh rupees as service tax but fails to pay the amount as collected to the credit of the Central Government beyond a period of six months from the date on which such payment becomes due.

In such cases,   after following the due procedure of arrest, the arrested person must be produced before the magistrate without unnecessary delay, and definitely within 24 hours. This is in terms of section 91(2) of the Finance Act, 1994, as amended. The magistrate will decide on whether or not to grant bail.

 

2.0        Conditions precedent

 

2.1        Since arrest impinges on the personal liberty of an individual, this power must be exercised carefully.  The Finance Act 1994, as amended,  has  specified categories of offences in respect of which only powers of arrest may be exercised and these offences are covered under clause (i) or clause (ii) of sub-section (1) of section 89 of the Finance Act, 1994.  Further, the Finance Act 1994 has also prescribed value limits of evasion of service tax exceeding  Rs 50 lakh, for exercising the powers of arrest.

                                                                              

2.2        The legal stipulations in the Finance Act 1994 , as amended, contained in section 91 read with section 89 must be strictly adhered to. An officer of Central Excise not below the rank of  Superintendentof Central Excise can carry out an arrest on being authorized by the Commissioner of Central Excise. To authorize the arrest the Commissioner should have reason to believe that the person proposed to be arrested has committed an offence specified in clause (i) or clause (ii) of sub-section (1) of section 89. The reason to believe must be based on credible material which will stand judicial scrutiny.

 

2.3     Apart from fulfilling the legal requirements, the need to ensure proper investigation, prevention of the possibility of tampering with evidence or intimidating or influencing witnesses and large amounts of service tax evaded are relevant factors before deciding to arrest a person. 

 

 

3.0      Procedure for arrest

 

3.1        The provisions of   the Code of Criminal Procedure 1973 (2 of 1974) relating to arrest and the procedure thereof must be adhered to .  It is therefore advised that the Commissioner should ensure that allofficers  are fully familiar with the provisions of the  Code of Criminal Procedure 1973 (2 of 1974).

 

3.2        There is no prescribed format for arrest memo but an arrest memo must be in compliance with the directions in D.K Basu vs State of West Bengal reported in 1997(1) SCC 416 ( see paragraph 35). The arrest memo should include:

3.2.1     brief facts of the case;

3.2.2     details of the person arrested;

3.2.3     gist of evidence against the person;

3.2.4    relevant section (s) of the Finance Act, 1994 or other laws attracted to the case and to the arrested person;

3.2.5    the grounds of arrest must be explained to the arrested person and this fact noted in the arrest memo;

3.2.6   a nominated person (as per the details provided by arrested person) of the arrested person should be informed immediately and this fact also may  be mentioned in the arrest memo;

3.2.7   the date and time of arrest may be mentioned in the arrest memo and the arrest memo should be given to the person arrested under proper acknowledgment;

3.2.8    a separate arrest memo has to be made and provided to each individual/arrested person. This should particularly be kept in mind in the event that there are several arrests in a single case.

 

3.3        Further there are certain modalities that should be complied with at the time of arrest and pursuant to an arrest, which include the following:

3.3.1    A female  should be arrested by or in the presence of a woman  officer;

3.3.2   Medical examination of an arrested person should be conducted by a medical officer in the service of Central or State Governments and in case the  medical officer is not available , by a registered medical practitioner, soon after the arrest is made. If an arrested person is a female then such an examination shall be made only  by, or under supervision of a female medical officer , and in case the female medical officer is not available, by  a female registered medical practitioner.

 

3.3.3   It shall be the duty of the person having the custody of an arrested person to take reasonable care of the health and safety of the arrested person.

 

4.0   Post arrest formalities

 4.1        The procedure is separately outlined for the different categories as listed in section 89(1) (i) and (ii) of the Finance Act, 1994, as amended:

 4.1.1     In cases covered under section 89(1) (i), the Assistant Commissioner or Deputy Commissioner is bound to release a person on bail against a bail bond. The bail conditions should be informed   in writing to the arrested person and also informed on telephone to the nominated person of the person (s) arrested .The arrested person should be also allowed to talk to a nominated person. The conditions will relate to, inter alia, execution of a personal bail bond and one surety of like amount given by a local person of repute, appearance before the investigating officer when required and not leaving the country without informing the officer. The amount to be indicated in the personal bail bond and security will depend, inter alia, on the amount of tax involved.

 4.1.2       If the conditions of the bail are fulfilled by the arrested person, he shall be released by the officer concerned on bail forthwith.   However, only in cases where the conditions for granting bail are not fulfilled, the arrested person shall be produced before the appropriate Magistrate without unnecessary delay and within twenty-four (24) hours of arrest.  The arrested person may be handed over to the nearest police station for his safe custody, within 24 hours, during the night under a challan, before he is produced before the Court. 

 4.2         In cases covered under section 89(1) (ii) and only in the event of circumstances preventing the production of the arrested person before a Magistrate without unnecessary delay, the arrested person may be handed over to nearest Police Station for his safe custody, within 24 hours, under a proper challan, and produced before the Magistrate on the next day, and the nominated person of the arrested person may be also informed accordingly.

 4.3     Formats of the relevant documentation i.e. the Bail Offer Letter, the Bail Bond and the Challan for handing over to the police, in the Code of Criminal Procedure, 1973. ( 2 of 1974) may be followed.

 4.4       Every Commissionerate should maintain a Bail Register which will have the details of the case, arrested person, bail amount, surety amount. The money/instruments/documents received as surety should be kept in safe custody. The money should be deposited in the treasury. The other instruments/documents should be kept in the custody of a single nominated officer. It should be ensured that the instruments/documents received as surety are kept valid till the bail is discharged.

 

Leave a comment

Filed under Uncategorized

Service tax on educational sector

Central Board of Excise and Customs has clarified that educational sector is completely exempt from service tax. Therefore any services provided to an educational institution is also exempt. 

 

F. No.B1/14/2013-TRU

Government of India

Ministry of Finance

Department of Revenue

Central Board of Excise& Customs

Tax Research Unit

146-F, North Block

New Delhi, 19th September, 2013

To

Chief Commissioners of Central Excise and Service Tax (All),    

Director General (Service Tax), Director General (Central Excise Intelligence), 

Director General (Audit),

Commissioners of Service Tax (All),

Commissioners of Central Excise and Service Tax (All).

 

Madam/Sir,

 

Subject: Education services – clarification — reg.

 

             

            The following representations have been received seeking clarifications regarding the levy of service tax on certain services relating to the education sector:

 

  1. Private Schools Correspondents Confederation, Madurai.
  2. Tamil Nadu Nursery, Primary, matriculation and Higher Secondary Schools Association, Chennai.
  3. Punjab Association, Chennai.
  4. Association of Self financing Universities of Rajasthan
  5. Unaided Schools’ Forum, Mumbai.
  6. Vedavalli Vidyalaya, Wallajapet.
  7. Independent Schools Associations, Chandigarh.
  8. Mother Teresa Public School, New Delhi.
  9. BVM Global, Chennai.
  10. Sastra University, Tanjavur.
  11. HLC International, Chennai.
  12. Sodexo Food Solutions, Mumbai.
  13. Federation of Associations of Maharastra, Mumbai.

 

2.         The matter is covered by two provisions of the Finance Act, 1994. Section 66D of the Finance Act contains a negative list of services and clause (l) thereof reads as under:

“services by way of –

(i) pre-school education and education upto higher secondary school or equivalent;

(ii) education as a part of a curriculum for obtaining a qualification recognized by any law for the time being in force;

(iii) education as a part of an approved vocational education course;”.

 

            Further section 93(1) of the Finance Act, 1994, enables the Government to exempt generally or subject to such conditions taxable service of specified description. By virtue of the said power, Government has issued a notification No.25/2012-ST dated 20th June, 2012, exempting certain services. Sl.no.9 thereof reads as follows:

 

“Services provided to an educational institution in respect of education exempted from service tax, by way of,-

(a) auxiliary educational services; or

(b) renting of immovable property;”.

 

As defined in the said notification, “auxiliary educational services” means any services relating to imparting any skill, knowledge, education or development of course content or any other knowledge–enhancement activity, whether for the students or the faculty, or any other services which educational institutions ordinarily carry out themselves but may obtain as outsourced services from any other person, including services relating to admission to such institution, conduct of examination, catering for the students under any mid-day meals scheme sponsored by Government, or transportation of students, faculty or staff of such institution.

 

3.         By virtue of the entry in the negative list and by virtue of the portion of the exemption notification, it will be clear that all services relating to education are exempt from service tax. There are many services provided to an educational institution. These have been described as “auxiliary educational services” and they have been defined in the exemption notification. Such services provided to an educational institution are exempt from service tax. For example, if a school hires a bus from a transport operator in order to ferry students to and from school, the transport services provided by the transport operator to the school are exempt by virtue of the exemption notification.

 

4.         In addition to the services mentioned in the definition of “auxiliary educational services”, other examples would be hostels, housekeeping, security services, canteen, etc.

 

5.         Thus the apprehensions conveyed in the representations submitted by certain educational institutions and organizations have no basis whatsoever. These institutions and organizations are requested not to give credence to rumours or mischievous suggestions. If there is any doubt they are requested to approach the Chief Commissioner concerned.

 

6.         All concerned are requested to acknowledge the receipt of this circular.

(J.M.Kennedy)

Director, TRU

Tel: 011-23092634

E-mailjm.kennedy@nic.in

Leave a comment

Filed under Uncategorized

Quorum for general meetings – section 103 of Companies Act, 2013

Section 103 of the Companies Act, 2013 which corresponds to section 174 of the Companies Act, 1956 has been notified on 12th September 2013 so it is effective from that date. 

It has made a substantial departure from the erstwhile provisions. Previously 5 members personally present in case of a public company constituted a quorum. The section 103 stipulates graded requirements of quorum depending upon the number of shareholders. If the number of shareholders as on the date of the general meeting is less than 1000, then 5 members personally present will constitute a quorum. If the number of members of the company as on the date of the general meeting is between 1001 to 5000 then quorum requirement is 15 members personally present and in case the number of members is more than 5000, then quorum requirement is 30 members personally present.

In case of a private company however, the quorum requirement is the same i.e. two members personally present. 

Further if the quorum is not present within half an hour of the appointed time, then the meeting shall be adjourned to the same day next week at the same time and place or such other time and place as the Board may determine. 

However, if the general meeting is called by requisitionists under section 100 (erstwhile section 169) then in case the quorum is not present within half an hour as above, then the meeting will stand cancelled.

For the adjourned meeting however, the company will have to give a fresh notice of at least 3 days either by sending individual notices to the shareholders or by publishing an advertisement in newspapers in English and in vernacular language in the district where the registered office of the company is situated.

If at the adjourned meeting also quorum is not present within half an hour of the appointed time, then whatever quorum is present will constitute a proper quorum. 

Since the section has been brought into effect on 12th September 2013, the quorum requirements will apply to all general meetings held after that date i.e. it will apply to substantially all the annual general meetings held for the purpose of approving the financial statements for the year ended 31st March 2013. The companies which had their annual general meetings on 12th September itself or a couple of days thereafter would have been taken unawares by this development. 

Also many companies have their registered offices at the factory sites which are located in remote villages or towns. In such cases it will become difficult for them to arrange quorum of 30 members personally present because there may not be many shareholders of that company in that remote area. However, the companies could consider granting employee stock options to the workers of the company in order to take care of this eventuality in the future. Good for the workers though. Some positive always comes out. 

The section unfortunately has not made any provision for counting quorum where the general meetings are simultaneously telecasted via video conferencing or webcasting methods to shareholders in main centres such as Mumbai, Bangalore, Chennai etc. by taking proper precautions of verifying the shareholder details. A modern company law should have taken cognizance of the technologies available which makes many old provisions redundant. If a company is doing a simulcast of the general meeting at different centres and the verification of the shareholders attending are properly made by the agencies in order to count them as “members personally present”, then there is no reason why such shareholders attending the general meeting sitting in their cities should not have been counted for the purpose. 

 

 

 

5 Comments

Filed under company law

Explanatory Statement to the Notice – section 102 of the Companies Act, 2013

Section 102 of the Companies Act, 2013 replaces the section 173 of the Companies Act, 1956 is identical in all respects except the nature of concern or interest in the particular item of business shall be given not only of directors and managers, but also of every other key managerial personnel and also relatives of these directors, managers and key managerial personnel. 

Where the item of business to be transacted at a general meeting relates to or concerns a company, then the shareholding interest in that other company of every promoter, director, manager or every other key managerial personnel shall, if the extent of shareholding interest is not less than 2% of the paid-up share capital of that other company shall also be set out in the explanatory statement. Hitherto, it was only the shareholding interest of the directors and the managers, if any, and also if the shareholding interest was not less than 20% of the paid up share capital of the second company. 

Section 102(4) is a new clause whereby as a result of non disclosure or insufficient disclosure being made in the explanatory statement, any benefit accrues to the promoter, director, manager, key managerial personnel or relatives thereof, either directly or indirectly, then the promoter, director, manager, key managerial personnel or relatives thereof shall hold such benefit in trust for the company and shall be liable to compensate the company to the extent of such benefit received by him. 

The earlier section 173 did not have any penalty clause. The new section 102 of the Companies Act, 2013 has a penalty clause (5) which says that on any default in complying with this section, the promoter, director, manager, or other key managerial personnel shall be punishable with fine which shall extend to Rs.50,000 or five times the benefit accruing to the promoter, director, manager, key managerial personnel or any of his relatives, whichever is more. So the penalty has been specified in the section itself and the penalty covers not only default in compliance but also the instance where the promoter, manager, director or other key managerial personnel gains any undue benefit due to such non disclosure or insufficient disclosure than he has to disgorge the benefits received to the extent of 5 times the benefits received by him. 

Previously section 170 of the Companies Act, 1956 gave exemption from the provisions of sections 171 to 186 of the Companies Act, 1956 to purely private companies if their articles provided for it. For eg. many private companies provided in their articles of association that there is no need to attach explanatory statement to the notice convening a general meeting in case of an item of special business.

There is no such provisions in the Companies Act, 2013. Which means that explanatory statements is mandatory for each item of special business in a private company. The moot question arises however is that whether the private companies need to now delete the relevant clauses in their articles of association or suitably modify to reflect the provisions as are applicable in the Companies Act, 2013.

11 Comments

Filed under company law

Want to Stay Alive? by James Hadley Chase

James Hadley Chase was one of those authors whose books usually lasts not more 170 to 180 pages (sometimes 220 pages) and each page is bustling with fast action. Murder, suspense, drama, police work, are all found in plenty in each of his books. And since Chase was born in India he usually has at least one reference to India or Indians in his books. This time in “Want to Stay Alive?” it is a Seminole Indian out in Paradise City who is out to make a fast buck killing a few rich people in an exclusive bridge club thereby spreading panic and making the remaining club members quake in their boots and release some monies to escape the brutal murders of their fellow members. The plan works fine and he starts getting busy, but a couple of murders too many heats up the place for the police to get into action. Poko Toholo the Seminole Indian a nut case having a sick mind has a couple of bedraggled dirty, sweaty, smelling couple to do some of his dirty work but somehow the plot unravels for each of them. A fast paced buzzing book, which is what is expected from James Hadley Chase. 

Leave a comment

Filed under readings

Blitzcat by Robert Westall

Blitzcat by Robert Westall is a very unusual book about the life of a cat during the world war II. It is a black cat and surprisingly and contrary to the popular belief among Indians, this black cat was considered to be lucky and many people aspired to save and keep this cat with them. The story takes place in Dover on the coast of England which experienced severe night time bombing and consequently destruction of property and lives. The cat miraculously survived all these and in fact the cat psi-trailed its original owner. The cat had an unusual name “Lord Gort” which was inscribed in a name tag bound around her neck. Lord Gort saved several lives whereas some people detested it. The narrative is not catspeak unlike “Black Beauty” or “Tiger of Malgudi” both equally impressive books about animals. It is the first time that I have read a book on cats and usually i detest cats but reading about Lord Gort’s adventures did soften my feelings for cats a bit though i still detest fat cats. 

Leave a comment

Filed under readings

section 86 of Companies Act, 2013

I am referring to section 86 of the Companies Act, 2013 which has been notified among the 98 notifications on 12th September 2013. The other sections of this Chapter i.e. Chapter VI relating to registration of charges has not been notified. Only section 86 which deals with penalties, fines etc. has been notified. 
 
This section levies a minimum fine of Rs.1 lakh on the companies which can go upto Rs.10 lakhs and every officer who is in default will face a punishment of imprisonment upto a term of 6 months or with a minimum fine of rs.25,000 which can extend to Rs.1 lakh or both. This is regarding Chapter VI which is registration of charges.
 
It is not clear in what circumstances will such hefty fines and penatlies be levied. Will it be for every delay in the filing of the registration of charges and modification or satisfaction of charges. Or will it be only in case of dispute proven in a trial in a Company Court or the National Company Law Tribunal. 
 
If it is more mere delays in registration of charges, then it is very hefty and already there are provisions for getting the delay commuted by making an application to the relevant authorities which is the Regional Director in the present instance. In India there are many co-operative banks which are not very sensitive with regard to the time frame within which the charges or the modifications thereof are required to be filed. Also there are many companies who are not very aware of the provisions relating to the registrations or modifications of charges and therefore I feel this section is very draconian in its intent. 

Leave a comment

Filed under company law

section 21 of the Companies Act, 2013

Section 21 of Companies Act 2013 which has been notified says that document or proceeding requiring authentication by a company or contracts made by or on behalf of the company may be signed by any Key Managerial Personnel or any officer of the company “duly authorised by the Board in this regard”. 

The previous 54 of the Companies Act 1956 did not talk about Board authorisation. So this probably means that each company will have to pass an omnibus resolution at its Board of Directors authorising each of its identified Key Managerial Personnel to sign a specific set of documents/ contracts etc.  What will happen to the existing Power of Attorneys given to the Managing Directors.  The Managing Directors and Executive Directors always had some inherent powers by virtue of their holding the position of directorship in the company to sign certain documents or contracts on behalf of the company. 

7 Comments

Filed under company law

Women Directors and Independent Directors – Companies Act, 2013

The 2nd proviso to section 149(1) of the Companies Act, 2013 states that “such class or classes of company as may be prescribed shall have at least one woman director”

Rule 11.1 in Chapter XI of the Draft Rules states that every listed company shall appoint a woman director within one year from the commencement of the 2nd proviso as above and every other public company having paid up share capital in excess of Rs.100 crores or turnover of Rs.300 crores or more shall appoint a woman director within 3 years from the commencement of the 2nd proviso as above. The words “commencement of the 2nd proviso” as opposed to “commencement of this section” has been written into the Rules probably because government still has second thoughts on the implementation of the provisions regarding mandatory appointment of women directors on the Boards of India Inc. 

Section 149(4) specifies that listed companies shall have one third of its total strength as independent directors and that certain other class or classes of companies as may be specified shall have independent directors as may be specified by the central government. 

Rule 11.2 specifies that public companies having paid up share capital of Rs.100 crores or more or turnover of Rs.300 crores or more or aggregate of loans, debentures, deposits, borrowings of Rs.200 crores should have at least one third of its total strength of the Board as independent directors. This is of course apart from the listed companies’ requirement which has been specified in the Act itself. 

Comparing the provisions of woman director and independent directors on the Boards of companies it is not clear if the woman director is also required to be an independent director, what are the qualifications of a woman director, can she be part of the promoter group. MCA should be more clear on this aspect because it is an important provision and being introduced for the first time in Indian corporate law history. If she is to be considered as part of the promoter group, then it would be better to scrap this provision or not implement it all, because it is going to be a farce with women in the households of the promoter group being routinely given a seat on the Board of Directors and they will virtually not have a say on the affairs of the company. My suggestion would be that woman director should be counted as an independent director if it has to make an impact on the gender representation, women’s role in the Board etc. 

 

2 Comments

Filed under company law

Chapter XI – Appointment and qualification of directors – section 149

Chapter XI – Appointment and qualification of directors

 

1)      2nd Proviso to section 149(1) – certain select companies to have women directors on their Board – these are (i) every listed company, and (ii) every other public company having paid up share capital of Rs.100 crores or more OR turnover of Rs.300 crores or more. In the first case the listed company should appoint woman director within one year from the commencement of the new act and in the second case, they have been given a three years leeway to comply with this section;

2)      The Rule 11.1 gives three years to a public company (other than listed company) “from the commencement of the 2nd proviso to section 149(1) of the Act” – i don’t understand the meaning of this phrase – “commencement of the 2nd proviso to section 149(1)” – does each of the provisos commence separately on different dates – i thought the entire section should commence at the same date, if at all the Ministry proposes the torturous process of separately intimating commencement of each sections of the Act, as it was done in the case of Competition Act, 2002;

3)      Women directors is made compulsory for all listed companies whereas even independent directors are not compulsory for all listed companies especially the small listed companies having paid up share capital upto Rs. 3 crores, for which the clause 49 is not made applicable so far;

4)      So the provisions of appointment of women directors on the Board is of far reaching consequence as the number of qualified women directors required by India Inc. Is going to be substantial;

5)      Section 149(3) is very important – it says that every company shall mandatorily have one director who is a resident Indian i.e. who has stayed in India for a period of not less than 182 days – this means that the companies cannot have a fully foreign Board – at least one director should be an Indian. All companies who are having fully foreign Board should take steps to induct at least one director on their Board;

6)      Section 149(4) goes contradictory to the existing listing agreement which gives exemption to the small listed companies from the provisions of clause 49 of the listing agreement thereof – it very clearly and equivocally says that every listed company shall have at least one-third of its total strength as independent directors. So SEBI needs to amend clause 49 to bring it in line with the companies act;

7)      Section 149(6) lays down stringent qualifications for being appointed as an independent director – person of integrity, relevant expertise, experience, not a promoter either now or in the past not only of the company, but also of its subsidiary or associate company, or not related to any of the promoters as above, no pecuniary relationship with any of these three classes of companies or whose relatives don’t have pecuniary relationship above a certain limit, or not a Key Managerial Personnel or an employee (even a peon!!) for the last three financial years or not a partner in any audit firm of CA, CS, CWA, legal consulting firm, or holds together with his relatives 2% or more of the voting power of the company or is a Chief executive of a NGO which receives 25% or more of its receipts from the company or its promoters, directors or holds 2% or more of the voting power of the company. Phew!!

8)      Section 149(7) states that every independent director shall at the first meeting at which he is appointed give a declaration that he qualifies in all the criteria that is given in section 149(6) excepting the part regarding person of integrity, expertise and experience which is required to be under an opinion of the Board;

9)      Section 149(8) – the company and its independent directors are required to abide by Schedule IV which is the Code of Conduct for Independent Directors;

10)   Section 149(9) – independent directors cannot be remunerated by way of stock options, but can receive fee, reimbursement of expenses, profit related commission as may be approved by the members – moot point here is that if the independent directors are going to be remunerated in any form by the company in which he is appointed as an independent director in whatever form the remuneration takes, then how can be retain his independence or how can he be called as an independent director;

11)   Section 149(10) & (11) – independent directors can be appointed for a maximum tenure of two consecutive period of 5 years each, but he can be re-appointed after a three year gap during which period he should not be associated in any form either with the company or its subsidiaries or its associate companies. Therefore technically speaking a young independent director can be appointed for 10 years, then take a 3 year sabbatical, come back for another 10 years and so on unless of course the law is changed further in this respect. I thought maximum tenure of 10 years is sufficient and after that “come-back” provisions after the 3 year gap, should have been avoided;

12)   Section 149(12) is very important and dangerous section for independent directors and also non executive directors – it is regarding liability for frauds committed by the company – the independent directors and NEDs can be held liable only if the fraud occurred with his knowledge, attributable through Board processes and with his consent or connivance or where he has not acted diligently – “attributable to Board processes” is not clear – ingredients of “knowledge, board processes and consent or connivance” should be present in the first instance or sheer lack of awareness on the second instance;

Leave a comment

Filed under company law

Draft Company Law Rules 2013 – Chapter II – Incorporation

 

1) The procedure for incorporation is more or less the same. The Rules lays down detailed guidelines for the same.
 
2) Rule 2.5(3) – if the company has changed its activities which is not reflected in its name, then it shall change its name in line with its activities by following the procedures for change of name – But who will certify or verify that the company has changed its activities – it is not clear, what constitutes change of activities. Private limited companies are allowed to carry on business specified in other objects as well. So does this mean that they are henceforth not allowed to do “other objects” business – clarity required on this clause
 
3) Rule 2.27(1)(h) – why there is a requirement of bank draft evidencing payment of fee – it can be made by online in the MCA 21 system and only the SRN quoted in the form.
 
4) Rule 2.27(2) Proviso – this is for change of registered office from one state to another – what happens when there is no Company Secretary in the company seeking change of registered office – therefore a PCS should be allowed to certify that the list of creditors is correct etc.
 
5) Rule 2.32 – definition of “electronic transmission” could very well have been made in the Act itself especially as (iii) says “any other means of electronic communication”. Besides the definition itself is appearing at two places in the same Rule
 
6) Lastly the devil lies in the forms – there are total 32 forms in this chapter itself – whether all the forms are required to be certified by professionals will be the moot question.
 
7) Remembering all the rules, sub rules, clauses, sub clauses is going to be one heck of a job!!
 
8) Lastly I feel that recognition given to chartered accountant and cost accountant while incorporating companies is ill advised – at the point of repeating ourselves we will say – it is not their core competency.
 
These are my observations on the Chapter II.     

Leave a comment

Filed under company law